UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

Commission File Number 0-25849

OneSource Information Services, Inc.

300 Baker Avenue, Concord, MA 01742

(978) 318-4300

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Yes x                      No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

     Yes o                      No x

     The number of shares of the issuer’s Common Stock, $0.01 par value per share, outstanding as of May 10, 2004 was 11,662,694.

OneSource Information Services, Inc.

CONTENTS

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PART I            FINANCIAL INFORMATION

Item 1. Financial Statements

ONESOURCE INFORMATION SERVICES, INC.

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial statements.

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ONESOURCE INFORMATION SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

The accompanying notes are an integral part of these consolidated financial statements.

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ONESOURCE INFORMATION SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial statements.

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ONESOURCE INFORMATION SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. Nature of Business

     OneSource Information Services, Inc. (“OneSource”) provides primarily Web-based business and financial information products to professionals in corporations and other enterprises and also distributes information on private technology companies. OneSource primarily sells its products through a direct sales force located throughout the United States and United Kingdom. OneSource manages its business as a single segment.

     On April 29, 2004, OneSource terminated the merger agreement, dated February 18, 2004, with affiliates of ValueAct Capital Partners, L.P. under which each share of common stock of OneSource outstanding at the time of the merger (other than shares held by ValueAct Capital and its affiliates) were to be converted into the right to receive $8.40 per share in cash.

     On April 29, 2004, OneSource also announced that it had agreed to be acquired by a wholly-owned subsidiary of infoUSA Inc. for $8.85 per share in cash. This transaction has been structured as a cash tender offer for 100% of OneSource’s outstanding shares of common stock to be followed by the merger of OneSource with and into a wholly-owned subsidiary of infoUSA Inc., and is expected to close in the second quarter of 2004.

2. Basis of Presentation

     The accompanying consolidated financial statements of OneSource as of March 31, 2004 and for the three-month periods ended March 31, 2004 and 2003 are unaudited. In the opinion of OneSource’s management, these unaudited interim consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations for those periods. The results of operations for the three-month period ended March 31, 2004 are not necessarily indicative of the results of operations for the year ending December 31, 2004.

     The balance sheet as of December 31, 2003 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in OneSource’s Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission on March 29, 2004.

3. Net Income (Loss) Per Share

     Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the sum of the weighted-average number of common shares outstanding during the period and, if dilutive, the weighted-average number of potential shares of common stock from the assumed exercise of stock options using the treasury stock method.

     Shares used in calculating basic and diluted net income (loss) per share are as follows:

     Options to purchase 2,488,470 and 2,236,048 shares of common stock for the three months ended March 31, 2004 and 2003, respectively, were not included in the computation of diluted net income (loss) per share because the effect of their inclusion would have been anti-dilutive.

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4. Accounting for Stock-Based Compensation

     Compensation expense has been recognized for OneSource’s stock option plans in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” Had compensation cost been determined based on the fair value of the options at the grant date consistent with the provisions of Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock-Based Compensation,” OneSource’s net income (loss) and net income (loss) per share on a pro forma basis would have been as shown below. For the three months ended March 31, 2003, stock-based compensation expense determined under the fair value method for all awards has been adjusted to properly reflect related tax effects.

     During the three months ended March 31, 2004, the vesting period and the term for options to purchase 125,000 shares of common stock were modified in connection with an employee termination. As a result of these modifications, OneSource recorded stock-based compensation expense of $56,000 during the three months ended March 31, 2004 in accordance with the Financial Accounting Standards Board Interpretation No. 44, “Accounting for Certain Transactions Involving Stock Compensation.”

5. Goodwill and Acquired Intangible Assets

     As of January 1, 2002, OneSource adopted Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets.” Under SFAS No. 142, goodwill and certain other intangible assets with indefinite lives are no longer amortized, but instead are reviewed for impairment annually, or more frequently if impairment indicators arise. SFAS No. 142 requires that OneSource identify its reporting units and determine the carrying value of each of those reporting units by assigning assets and liabilities, including existing goodwill and acquired intangible assets, to those reporting units. OneSource has concluded that it currently has one reporting unit, and has assigned the entire balance of goodwill to this reporting unit for the purpose of performing its annual goodwill impairment test. OneSource performed its annual goodwill impairment test during the third quarter of 2003 and determined that goodwill was not impaired because OneSource’s fair value exceeded the net assets of the reporting unit, including goodwill. The fair value of this reporting unit was determined using OneSource’s market capitalization based on the closing price of its common stock as quoted on the Nasdaq National Market. OneSource will continue to perform its annual goodwill impairment test during the third quarter of each fiscal year, as well as on an event-driven basis, as required under SFAS No. 142.

     There was no change in the carrying value of goodwill during the three months ended March 31, 2004.

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Acquired intangible assets consist of the following:

     Amortization of acquired intangible assets was $81,000 for each of the three-month periods ended March 31, 2004 and 2003. The following table summarizes estimated future amortization expense related to acquired intangible assets recorded at March 31, 2004 for the periods indicated:

6. Long-Term Debt

     In December 2002, OneSource entered into a Loan and Security Agreement with Silicon Valley Bank permitting borrowings of up to $10.0 million. The Loan and Security Agreement represents a working capital revolving line of credit and an equipment line of credit for up to $5.0 million each and was effective for one year from the date of signing. OneSource has granted Silicon Valley Bank a security interest in substantially all of its assets as collateral.

     Borrowings under the equipment line of credit incur interest at the prime interest rate (4.00% as of March 31, 2004) plus 0.50%. The equipment line of credit had two draw-down periods, one that expired on March 31, 2003 and a second that expired on September 30, 2003. Principal payments under the equipment line of credit consist of 36 equal monthly installments, commencing at the end of each draw-down period. In March 2003, OneSource borrowed $1.5 million under the equipment line of credit and monthly repayments of 36 equal installments began on April 1, 2003. In September 2003, OneSource borrowed $1.3 million under the equipment line of credit and monthly repayments of 36 equal installments began on October 1, 2003.

     The working capital line of credit expired on December 20, 2003. On January 8, 2004, OneSource entered into the First Loan Modification Agreement that retroactively extended the working capital revolving line of credit portion of the Loan and Security Agreement from December 21, 2003 until March 18, 2004. OneSource did not renew the working capital revolving line of credit which expired on March 18, 2004. There were no outstanding borrowings under the working capital line of credit as of March 31, 2004.

     In June 2003, OneSource reserved $0.6 million from the working capital line of credit to secure two letters of credit related to leased office space. OneSource is required to maintain, on behalf of the landlord, these letters of credit over the term of the leases. Due to the expiration of the working capital line of credit on March 18, 2004, OneSource established two restricted certificates of deposits that total $0.6 million to secure these letters of credit.

     The Loan and Security Agreement contains financial covenants requiring that once a borrowing takes place, OneSource maintain an adjusted quick ratio of 2.0:1 and to report a net profit of at least $1.00 for each fiscal quarter. The adjusted quick ratio is defined as quick assets to current liabilities, minus deferred revenue. Quick assets include unrestricted cash, cash equivalents, net billed accounts

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receivable and investments with maturities of fewer than 12 months. As of March 31, 2004, OneSource did not comply with the financial covenant of reporting at least a net profit of $1.00 for the three months ended March 31, 2004. Silicon Valley Bank waived such noncompliance on April 21, 2004.

     In June 2003, OneSource borrowed $0.3 million and issued a promissory note to fund maintenance costs associated with computer networking equipment. The note is payable in twelve equal quarterly installments of approximately $25,000 at an effective interest rate of 1.7%, beginning May 2003. The promissory note does not require any collateral and does not contain any financial covenants.

     The following table summarizes future maturities under the equipment line of credit and the promissory note as of March 31, 2004:

7. Comprehensive Income (Loss)

     Total comprehensive income (loss), which includes net income (loss) and the foreign currency translation adjustment, was $(60,000) and $0.6 million for the three months ended March 31, 2004 and 2003, respectively.

8. Geographic Information

     Revenue was distributed geographically as follows:

     Substantially all of OneSource’s identifiable long-lived assets are located in the United States.

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9. Stockholders’ Equity

     a. Treasury Stock

     In April 2001, OneSource’ board of directors announced a stock buyback program to repurchase up to 1,000,000 shares of OneSource common stock over the following twelve months. In January 2002, OneSource completed the repurchase of its common stock authorized under this stock buyback program at an average price of $8.48 per share.

     In January 2002, OneSource’ board of directors announced a second stock buyback program to repurchase up to an additional $5.0 million of its common stock over the following twelve months. In November 2002, OneSource completed its second stock buyback program, having repurchased 749,931 shares of its common stock at an average price of $6.67 per share.

     In October 2002, OneSource’ board of directors announced a third stock buyback program to repurchase up to an additional $5.0 million of its common stock over the following twelve months. In August 2003, OneSource completed its third stock buyback program, having repurchased 736,837 shares of its common stock at an average price of $6.79 per share.

     In July 2003, OneSource’ board of directors announced a fourth stock buyback program to repurchase up to an additional $7.0 million of its common stock over the following twelve months. As of March 31, 2004, OneSource had repurchased 234,882 shares of its common stock under this fourth stock buyback program at an average price of $7.83 per share for a total cost of $1.8 million.

     In August 2002, OneSource began to re-issue its treasury stock, using the average cost method, for stock option exercises associated with OneSource’s various stock option plans and the 1999 Employee Stock Purchase Plan. As of March 31, 2004, OneSource had re-issued 1,082,965 shares of its treasury stock having an average cost of $7.51 per share.

     Gains resulting from the re-issuance of treasury stock at per share prices that are above the average cost are recorded as an increase to additional paid-in capital. Losses resulting from the re-issuance of treasury stock at per share prices that are below the average cost are first recorded as a reduction of additional paid-in capital for previously recorded gains, then as an increase to accumulated deficit. As a result of the re-issuance of treasury stock, OneSource recorded an increase of zero and $1.1 million to accumulated deficit during the three months ended March 31, 2004 and 2003, respectively.

     b. Shareholder Rights Plan

     In October 2003, the board of directors of OneSource adopted a shareholder rights plan (the “Rights Plan”) under which all holders of record of OneSource common stock as of October 6, 2003 were issued a right to purchase a fraction of a share of a new series of preferred stock. The Rights Plan is designed to enhance the ability of OneSource’s board of directors to provide for fair and equal treatment for all shareholders.

     Each right entitles the holder to purchase from OneSource one-thousandth of a share of a new series of participating preferred stock at an initial purchase price of $32.50. The rights will become exercisable and will detach from the common stock a specified period of time after any person has become the beneficial owner of 15% or more of OneSource common stock or commenced a tender or exchange offer which, if consummated, would result in any person becoming the beneficial owner of 15% or more of the common stock.

     If any person becomes the beneficial owner of 15% or more of OneSource common stock, each right will entitle the holder, other than the acquiring person, to purchase for a number of shares of capital stock of OneSource having a value of twice the purchase price.

     If, following an acquisition of 15% or more of OneSource common stock, OneSource is involved in certain mergers or other business combinations or sells or transfers more than 50% of its assets or earning power, each right will entitle the holder to purchase for the purchase price common stock of the other party to such transaction having a value of twice the purchase price.

     At any time after a person has acquired 15% or more (but before any person has acquired more than 50%) of OneSource common stock, OneSource may exchange all or part of the rights for shares of common stock at an exchange ratio of one share of common stock per right.

     The Rights Plan “grandfathers” ValueAct Capital, L.P. and its affiliates as long as they do not acquire beneficial ownership of more than 35% of OneSource common stock. On February 17, 2004, the Rights Plan was amended to exempt the proposed transaction with ValueAct Capital and its affiliates. On April 29, 2004, the proposed transaction with ValueAct Capital and its affiliates was terminated.

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     On April 29, 2004, the Rights Plan was further amended to exempt the proposed transaction with infoUSA Inc. and to remove the exemption for the proposed transaction with ValueAct Capital and its affiliates.

     OneSource may redeem the rights at a price of $0.001 per right at any time prior to the time that any person becomes the beneficial owner of 15% or more of its common stock. The rights will expire on October 6, 2013, unless earlier exchanged.

10. Guarantor Agreements and Provisions

     The following is a summary of agreements and provisions that OneSource has determined are within the scope of Financial Accounting Standards Board Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others:”

     OneSource’s agreements with OneSource product customers, third party information and technology providers, and vendors include standard indemnification provisions. Under these agreements, OneSource generally agrees to defend, indemnify, and hold harmless the indemnified party with respect to any third party claim that the OneSource product, excluding any data or technology provided by the indemnified party, infringes a United States or United Kingdom patent, copyright, trade secret, or other proprietary right. The terms of these indemnification provisions are generally perpetual after execution of the agreement. The maximum potential amount of future payments OneSource may be required to make under these indemnification provisions is unlimited. OneSource has never incurred costs to defend lawsuits or settle actions related to these indemnification provisions. As a result, OneSource believes that the estimated fair market value of these indemnification provisions is minimal. Accordingly, OneSource does not have any liabilities recorded in its financial statements related to these provisions as of March 31, 2004.

     OneSource’s agreements with OneSource product customers also include standard warranty provisions. OneSource warrants that it has the right to license the OneSource product line to customers, but does not warrant the accuracy, adequacy, completeness, or timeliness of the OneSource products or content from the OneSource products. If required, OneSource would disclose the estimated cost of product warranties based on specific warranty claims received. However, OneSource has never incurred expense under its product warranties. As a result, OneSource believes that the estimated fair market value of this warranty provision is minimal. Accordingly, OneSource does not have any liabilities recorded in its financial statements related to this provision as of March 31, 2004.

     OneSource has provisions in its articles of incorporation whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was serving, at OneSource’s request in such capacity. The maximum potential amount of future payments OneSource could be required to make under these indemnification provisions is unlimited; however, OneSource has a Directors and Officers insurance policy that limits its exposure and should enable it to recover a portion of any future amounts paid. As a result of OneSource’s insurance policy coverage, OneSource estimates that the exposure resulting from these indemnification provisions is minimal. Accordingly, OneSource does not have any liabilities recorded for these provisions as of March 31, 2004.

11. Contingencies

     OneSource and its directors were named as defendants in two purported class action lawsuits filed in the Delaware Court of Chancery in February 2004, entitled Hoffacker v. OneSource Information Services, Inc., et al., Filing ID No. 3140593, and Pennsylvania Avenue Funds v. Kamin, et al., Filing ID No. 3141683, respectively. The complaints allege, among other things, that the defendants breached their fiduciary duties in entering into the proposed transaction with affiliates of ValueAct Capital. The complaints seek unspecified damages and injunctive relief. OneSource and its directors believe the claims to be without merit and intend to defend against them vigorously.

12. Subsequent Event

     At March 31, 2004, OneSource did not comply with a financial covenant of the Loan and Security Agreement, as described in Note 6 to these consolidated financial statements, and Silicon Valley Bank has waived such noncompliance as of April 21, 2004.

     On April 29, 2004, OneSource terminated the merger agreement, dated February 18, 2004, with affiliates of ValueAct Capital Partners, L.P. under which each share of common stock of OneSource outstanding at the time of the merger (other than shares held by ValueAct Capital and its affiliates) was to be converted into the right to receive $8.40 per share in cash (the “ValueAct Agreement”). Pursuant to the terms of the ValueAct Agreement, OneSource paid ValueAct Capital a termination fee of $3.0 million and expense reimbursement of $956,255.

     On April 29, 2004, OneSource also announced that it had entered into an agreement to be acquired by a wholly-owned subsidiary of infoUSA Inc. for $8.85 per share in cash. This transaction has been structured as a cash tender offer for 100%

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of OneSource’s outstanding shares of common stock to be followed by the merger of OneSource with and into a wholly-owned subsidiary of infoUSA Inc., and the offer is expected to close in the second quarter of 2004. A vote of OneSource shareholders on the merger will be required only if infoUSA owns less than 90% of the shares of common stock of OneSource following the offer. In connection with the transaction, ValueAct Capital Partners, L.P. and certain of its affiliates and Martin Kahn, executive chairman and interim chief executive officer of OneSource, have entered into agreements with infoUSA Inc., under which they have agreed to tender their OneSource common stock pursuant to the offer and vote in favor of the offer. These stockholders held approximately 34.1% of the outstanding common stock of OneSource as of April 29, 2004. As part of the transaction, OneSource has granted infoUSA an option to acquire up to 19.9% of the issued and outstanding shares of OneSource that would become exercisable only upon the acceptance and payment for shares of common stock in the offer if, after the exercise of the option, infoUSA would own 90% or more of the issued and outstanding shares of common stock of OneSource. On April 29, 2004, OneSource’s Rights Agreement with American Stock Transfer & Trust Company, dated as of October 7, 2003, was amended to exempt this proposed transaction. On April 29, 2004, OneSource received a payment of $3.0 million from infoUSA for the purpose of reimbursing OneSource for the termination fee incurred in connection with OneSource’s termination of the ValueAct Agreement.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion contains forward-looking statements that involve risks and uncertainties. OneSource makes such forward-looking statements under the provision of the “Safe Harbor” section of the Private Securities Litigation Reform Act of 1995. Any forward-looking statements should be considered in light of the factors described below in this Item 2 under “Certain Factors that May Affect Future Results.” Actual results may vary materially from those projected, anticipated or indicated in any forward-looking statements. In this Quarterly Report on Form 10-Q, the words “anticipates,” “believes,” “expects,” “intends,” “future,” “could,” and similar words or expressions (as well as other words or expressions referencing future events, conditions or circumstances) identify forward-looking statements.

Overview

     OneSource provides primarily Web-based business and financial information products to professionals who need quick access to timely and reliable company, industry, and market intelligence. In addition, OneSource provides fee-based consulting services to customers who seek to integrate content from OneSource^® products into their internal software platforms and applications such as intranets, portals, and customer relationship management systems. These fee-based services include helping customers apply OneSource’s proprietary classification system, the Global Business Taxonomy^TM system, which organizes and links customers’ internal data with content from OneSource products, as well as assisting customers in designing and building custom information applications.

     OneSource was formed as a division of Lotus Development Corporation in 1987 and became an independent company when it was purchased in a management buy-out in 1993. Until December 1996, OneSource’s business was to provide business information to the financial community using CD Rom technology as the primary method of distribution. The introduction of the OneSource Business Browser^SM product line in December 1996 marked a fundamental shift in the business as OneSource began a transition away from its legacy CD Rom business and toward Web-based products. The OneSource Business Browser product line is designed to be a comprehensive and easy-to-use business and financial information resource, integrating over 2,500 sources of business information from more than 30 business and financial information providers and OneSource’s own CorpTech^® high-technology company database. The OneSource product line also includes the AppLink^SM software development kit, which allows customers to access content in HTML and XML formats from Business Browser products through their own internal applications and without the use of the Business Browser user interface and pre-established screens and workflow.

     On April 29, 2004, OneSource terminated the merger agreement, dated February 18, 2004, with affiliates of ValueAct Capital Partners, L.P. under which each share of common stock of OneSource outstanding at the time of the merger (other than shares held by ValueAct Capital and its affiliates) were to be converted into the right to receive $8.40 per share in cash.

     On April 29, 2004, OneSource also announced that it had agreed to be acquired by a wholly-owned subsidiary of infoUSA Inc. for $8.85 per share in cash. This transaction has been structured as a cash tender offer for 100% of OneSource’s outstanding shares of common stock to be followed by the merger of OneSource with and into a wholly-owned subsidiary of infoUSA Inc., and is expected to close in the second quarter of 2004.

     Revenues from OneSource products generally consist of monthly subscription fees from customer contracts. Customer contracts span varying periods of time but are generally for one year, are renewable for like periods, and are payable in advance. Subscription fees generally are quoted to clients on an annual basis but are earned as revenues ratably on a monthly basis over the subscription period. Invoices are recorded as accounts receivable until paid and as deferred revenues until earned. Deferred revenues decreased 12% to $26.1 million as of March 31, 2004 from $29.5 million as of December 31, 2003, and increased 4% from $25.0 million as of March 31, 2003.

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     Cost of revenues consists primarily of royalty costs for information providers and, to a lesser extent, employee salaries and benefits, facilities allocation and related expenses, depreciation associated with computers for data processing and on-line requirements, amortization of capitalized internal use software development costs, and Web hosting expenses. OneSource enters into contracts with information providers, which are generally for a term of at least one year and automatically renew if not canceled by either party as of the end of any term. These contracts may be terminated by either party during the term under certain breach(es) and other circumstances. Under these agreements, royalties are generally paid on a quarterly basis to information providers. Royalties are generally calculated as a fixed fee, as a flat percentage of the amount that OneSource invoices its customers, or as a calculated fee based upon product revenue growth of OneSource products compared to prior periods. Royalties are initially recorded as deferred royalties and are expensed over the term of the contract period as revenues are earned.

     Selling and marketing expense consists primarily of employee salaries and benefits paid to OneSource’s sales force, customer support organization, and marketing personnel; sales commissions paid to OneSource’s sales force; facilities allocation and related expenses; direct marketing promotional materials; trade show exhibitions; and advertising. Sales commissions are paid when customers are invoiced, generally initially recorded as deferred commissions, and expensed over the term of the subscription period as revenues are earned. All other selling and marketing costs are expensed as incurred.

     Platform and product development expense consists primarily of employee salaries and benefits, facilities allocation and related expenses, as well as outside contractor expenses, relating to the development of the “platform” of core software supporting OneSource products and the development of new products based upon that platform. Platform and product development expense includes expenses relating to the editorial staff that implements the Global Business Taxonomy^TM system to integrate disparate information sources into the OneSource Business Browser products.

     General and administrative expense consists primarily of employee salaries and benefits, facilities allocation and related expenses associated with OneSource’s management, finance, purchasing, human resources, legal, management information systems, and administrative groups.

Critical Accounting Policies, Significant Judgments and Estimates

     OneSource’s discussion and analysis of its financial condition and results of operations are based upon OneSource’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires OneSource to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, OneSource evaluates its estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

     OneSource believes the following accounting policies are most critical to fully understanding and evaluating its financial results, as well as the areas of more significant judgments and estimates used in the preparation of its consolidated financial statements:

     Revenue Recognition. OneSource products are generally sold on a subscription basis pursuant to customer contracts that span varying periods of time, but are generally for a period of one year. OneSource initially records accounts receivable and defers the related revenue when persuasive evidence of an arrangement exists, fees are fixed or determinable, and collection is reasonably assured. Revenues are recognized ratably over the related subscription period beginning when access to products is granted to the customer in accordance with customer agreements. OneSource believes that this policy significantly reduces subjectivity in determining the timing of revenue recognition.

     Software Development Costs. Platform and product development costs, other than certain software development costs, are charged to expense as incurred. OneSource follows Statement of Position 98-1 (“SOP 98-1”), “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” which requires research and development costs associated with the application development stage to be capitalized for internal use software. Capitalized software development projects include software platforms used in OneSource products and programs used for its proprietary classification system. Management is required to use professional judgment in determining whether development costs meet the criteria in SOP 98-1 for immediate expense or capitalization. OneSource capitalizes qualified internal and external costs directly associated with developing or modifying internal-use software, which begins with the application development stage and ends when the software is ready for its intended use. The application development stage typically includes tasks such as coding and testing. Capitalized internal-use software is amortized over its estimated useful life, generally two to three years.

     Deferred Royalties and Commissions. Deferred royalties and commissions include royalty costs and sales commissions that are associated with procuring information and securing a subscription to be delivered over the subscription period, respectively. These costs are deferred and amortized ratably over the associated subscription period as a component of cost of revenues and selling and

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marketing expense, respectively. Long-term deferred royalties are attributable to certain limited contracts with information providers that allow for the use of their information generally for a predetermined period of time at no additional cost to OneSource after termination of the contract (“Wind-down Period”). OneSource currently intends to renew all existing contracts which include a Wind-down Period, and accordingly, royalty payments associated with a Wind-down Period have been classified as long-term deferred royalties. If a contract relating to the procurement of information used in the OneSource products is terminated prematurely and/or OneSource elects to no longer use such information, for any reason, royalty expense recognition may be accelerated and incurred sooner than originally anticipated.

     Allowance For Doubtful Accounts. OneSource assesses collectibility of accounts receivable based on a number of factors including, but not limited to, past transactions history with the customer and the credit worthiness of the customer. OneSource does not request collateral from its customers. OneSource maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of OneSource’s customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required.

     Goodwill and Acquired Intangible Assets. Goodwill and acquired intangible assets, which consist of a trademark, subscriber list, and database, were the results of an acquisition of a company by OneSource in 1999. Acquired intangible assets are amortized using the straight-line method over periods of approximately five to seven years, based on the estimated useful life. In accordance with Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets,” OneSource ceased amortizing goodwill as of January 1, 2002 and reviews goodwill for potential impairment in the third quarter of each fiscal year, as well as on event-driven basis, using a fair value approach. Since OneSource constitutes one reporting unit under SFAS No. 142, its fair value, which equals its market capitalization based on the closing price of its common stock as quoted on the Nasdaq National Market, is compared to its net assets, which includes the carrying value of goodwill. If OneSource’s market capitalization exceeds its net assets, it is determined that no impairment has occurred and no adjustment is required. If impairment is indicated, a write-down to the implied fair value of goodwill is recorded. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination.

     Long-Lived Asset Impairment. OneSource periodically evaluates its long-lived assets, excluding goodwill, for impairment under Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” whenever events or changes in circumstances indicate, in management’s judgment, that the carrying amount of such assets may not be recoverable. OneSource’s long-lived assets subject to such a review include property and equipment, capitalized software costs and acquired intangible assets. When such events or changes in circumstances occur, OneSource assesses the recoverability of the assets by determining whether the amortization of the remaining balance over its estimated remaining life can be recovered through projected undiscounted future cash flows and measures the impairment loss, if any, based on the related future estimated discounted cash flows. Such events and changes in circumstances include, but are not limited to, significant underperformance relative to expected historical or projected future operating results and significant negative industry or economic trends.

     Income Taxes. OneSource records income taxes in accordance with Statement of Financial Accounting Standards No. 109 (“SFAS No. 109”), “Accounting for Income Taxes,” which requires management judgment in determining OneSource’s consolidated provision for income taxes, deferred income tax balances, and any valuation allowance associated with deferred tax assets. A deferred income tax asset or liability is established when differences exist between the financial statement carrying amount and the tax bases of assets and liabilities. When it is more likely than not that all or some portion of specific deferred tax assets will not be recovered from future taxable income, a valuation allowance must be established for the amount of deferred tax assets that are determined not to be realizable. In accordance with SFAS No. 109, OneSource evaluates all available evidence, both positive and negative, bearing upon the realizability of its deferred tax assets. At March 31, 2004 and December 31, 2003, there was no valuation allowance because OneSource determined that it was more likely than not that its deferred tax assets would be realized based on facts and circumstances which include, but are not limited to, its recent history of profitability, current economic conditions and forecasted profitability in the future.

Comparison of Results for the Quarters Ended March 31, 2004 and March 31, 2003

     Revenues. Revenues decreased 1% to $14.3 million for the quarter ended March 31, 2004 from $14.5 million for the quarter ended March 31, 2003. Web-based product revenues decreased 1% to $13.9 million for the quarter ended March 31, 2004 from $14.1 million for the quarter ended March 31, 2003. This decrease was primarily a result of an overall decline in revenues by $0.8 million, which was partially offset by the impact of a higher average currency conversion rate relating to the conversion of British pounds associated with OneSource’s operations in the United Kingdom to United States dollars, which increased Web-based product revenues by $0.6 million. At the same time, CD Rom product and other revenues were $0.4 million for each of the quarters ended March 31, 2004 and 2003.

     Cost of Revenues. As a percentage of revenues, cost of revenues was 32% for each of the quarters ended March 31, 2004 and 2003. Cost of revenues decreased 2% to $4.6 million for the quarter ended March 31, 2004 from $4.7 million for the quarter ended March 31, 2003. This decrease was principally due to decreased royalty expense by $0.2 million and lower depreciation expense

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associated with computer equipment used for data processing and on-line requirements by $0.2 million. Partially offsetting these decreases were increased compensation-related expense by $0.1 million, higher software maintenance expense by $0.1 million and increased amortization expense of capitalized software development costs by $0.1 million.

     Selling and Marketing Expense. As a percentage of revenues, selling and marketing expense was 31% for each of the quarters ended March 31, 2004 and 2003. For each of the quarters ended March 31, 2004 and 2003, selling and marketing expense was $4.5 million. Although selling and marketing expense in total remained flat for the quarter ended March 31, 2004, compensation-related expense increased by $0.4 million as a result of increased headcount and allocation of facility costs increased by $0.1 million. These increases were offset by lower recruiting expense by $0.2 million, decreased fees paid to outside consultants by $0.2 million, and decreased marketing expense by $0.1 million.

     Platform and Product Development Expense. As a percentage of revenues, platform and product development expense decreased to 18% for the quarter ended March 31, 2004 from 19% for the quarter ended March 31, 2003. Platform and product development expense decreased 4% to $2.6 million for the quarter ended March 31, 2004 from $2.7 million for the quarter ended March 31, 2003. This decrease was primarily due to lower outside contractor expense by $0.2 million and decreased recruiting expense by $0.1 million. Offsetting these decreases by $0.2 million was lower capitalization of software development costs associated with the development of software platforms to be used in OneSource’s products and programs.

     General and Administrative Expense. As a percentage of revenues, general and administrative expense increased to 21% for the quarter ended March 31, 2004 from 10% for the quarter ended March 31, 2003. General and administrative expense increased 99% to $3.0 million for the quarter ended March 31, 2004 from $1.5 million for the quarter ended March 31, 2003. This increase was primarily due to $0.5 million in charges associated with severance costs for OneSource’s previous chief executive officer and $0.7 million of expenses associated with the work of the special committee and the proposed merger with affiliates of ValueAct Capital Partners, L.P., which were incurred during the quarter ended March 31, 2004. Expenses associated with the work of the special committee and the proposed merger with affiliates of ValueAct Capital included legal fees of $0.5 million, fees of $0.1 million to members of the special committee, and other related costs of $0.1 million.

     Amortization of Acquired Intangible Assets. Amortization of acquired intangible assets was $0.1 million for each of the quarters ended March 31, 2004 and 2003. This expense is the result of the acquisition of Corporate Technology Information Services, Inc. in October 1999 and the associated amortization of the acquired intangible assets.

     Interest Income, Net. Interest income, net of interest expense, was $0.1 million for each of the quarters ended March 31, 2004 and 2003. Interest expense associated with OneSource’s long term debt was approximately $39,000 for the quarter ended March 31, 2004.

     Provision for Income Taxes. For the quarter ended March 31, 2004, the benefit for income taxes was $0.1 million on a pre-tax loss of $0.3 million compared to a provision for income taxes of $0.4 million on pre-tax income of $1.2 million for the quarter ended March 31, 2003. The effective tax rate was 35% and 37% for the quarters ended March 31, 2004 and 2003, respectively. For both quarters ended March 31, 2004 and 2003, OneSource calculated its provision for income taxes for its domestic income using the federal statutory tax rate of 34%, plus an estimated effective state tax rate of 5%. For both quarters ended March 31, 2004 and 2003, OneSource calculated its provision for income taxes for its foreign income using a 30% effective tax rate. Due to differentials in domestic and foreign income for the quarters ended March 31, 2004 and 2003, these calculations yielded annualized worldwide effective tax rates of 35% for the three months ended March 31, 2004 and 37% for the three months ended March 31, 2003.

Annualized Contract Value

     One measure of the performance of OneSource’s business is “annualized contract value.” Annualized contract value is a measurement that OneSource uses for normalized period-to-period comparisons to indicate business volume and growth, both in terms of new customers and upgrades and expansions by existing customers. OneSource’s presentation and calculation of annualized contract value may not be comparable to similarly titled measures used by other companies. It is not an absolute indicator, and OneSource cannot guarantee that any annualized contract value will be ultimately realized as revenues.

     OneSource uses annualized contract value as a measure of its business because it shows the growth or decline in OneSource’s customer base in a way that revenues cannot. Since OneSource’s business is primarily subscription-based, revenues are recognized not when a sale is made, but in ratable portions over the term of the subscription (which is usually twelve months). As a result, from a revenue viewpoint the addition or loss of even a major customer contract may not have a dramatic impact on a quarter-to-quarter basis. On the other hand, by looking at the value of customer contracts in hand at the end of each quarter, OneSource can more readily see trends in its business. For example, the addition of a one-year subscription contract with total payments of $1.0 million may only increase revenues by approximately $250,000 ($1.0 million divided by four) in the quarter in which the sale is made, but would increase annualized contract value by $1.0 million. Similarly, if the customer did not renew that contract, revenues in the next quarter would only decrease by $250,000, while annualized contract value would decrease by $1.0 million.

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     In calculating annualized contract value, OneSource factors only those contracts for which the customer has actually been invoiced. Since amounts invoiced are included in deferred revenues on OneSource’s balance sheet for all customer contracts with terms extending beyond the month of invoice, this demonstrates that annualized contract value is based on actual customer contracts reflected in OneSource’s historical financial statements. To compute annualized contract value, one multiplies by twelve the amount of total invoiced fees for one month that are included in deferred revenues. Annualized contract value is not intended to be an absolute indicator of future revenues. OneSource only annualizes existing, invoiced contracts, but does so without regard to the remaining term of those contracts. Most of OneSource’s contracts are for 12 months, but as of the date that OneSource calculates annualized contract value, the remaining term of nearly all of OneSource’s contracts will be less than 12 months. If a customer fails to pay its invoiced fees or terminates the contract or if OneSource is unable to renew a contract, its revenues in subsequent periods may be less than expected if based solely on annualized contract value. Conversely, if OneSource adds additional customers or renews existing contracts at higher rates, its revenues in future periods may exceed expectations if based solely on annualized contract value.

     The calculation of annualized contract value for OneSource’s Web-based products is illustrated below:

     The aggregate annualized contract value for Web-based products was $53.2 million as of March 31, 2004, compared to $54.3 million as of March 31, 2003. Of this $53.2 million, $48.6 million was attributable to those customers that were under contract as of both March 31, 2004 and 2003. The renewal rate for subscribers of the Business Browser product line as of March 31, 2004 was 79%, calculated on a dollar basis, whereas the renewal rate for those subscribers that also used the AppLink software development kit as of March 31, 2004 was 22%, calculated on a dollar basis.

     The number of Web-based customers increased to 760 at March 31, 2004 from 750 at December 31, 2003 and decreased from 790 at March 31, 2003. On average, OneSource’s customers for Web-based products as of March 31, 2004 had an annualized contract value of $70,000 per customer, compared to an average annualized contract value of $68,800 per customer as of March 31, 2003.

     As of March 31, 2004, 43 organizations subscribed to the AppLink software development kit. Such customers as of March 31, 2004 generated, on average, approximately $396,285 each in annualized contract value.

Liquidity and Capital Resources

     Since acquiring the business from Lotus Development Corporation in 1993, OneSource has funded operations through a combination of seller financing, proceeds received from the sale of Class P common stock and common stock in connection with the purchase of the business from Lotus Development Corporation, bank debt, proceeds received from the sale of non-strategic lines of business, capitalized equipment leases, cash flows from operations, OneSource’s initial public offering which closed in May 1999, and issuance of stock pursuant to stock options and an employee stock purchase plan.

     Cash and cash equivalents totaled $25.3 million at March 31, 2004, compared to $22.8 million at December 31, 2003. The increase was primarily due to net cash provided by operating activities of $4.0 million, partially offset by net cash used by investing activities of $1.7 million and net cash used by financing activities of $0.2 million.

     Net cash provided by operating activities was $4.0 million for the quarter ended March 31, 2004, compared to $4.6 million for the quarter ended March 31, 2003. The net decrease of $0.6 million period to period was the result of a net loss of $0.2 million for the quarter ended March 31, 2004, compared to net income of $0.7 million for the quarter ended March 31, 2003, a decrease of $0.2 million in the tax benefits of stock options, and a decrease in depreciation and amortization by $0.1 million, partially offset by a net increase in operating assets and liabilities of $0.6 million.

     Net cash used by investing activities was $1.7 million for the quarter ended March 31, 2004, compared to $1.4 million for the quarter ended March 31, 2003. Net cash used by investing activities was primarily for purchases of property and equipment of $0.9 million during the quarter ended March 30, 2004 and $0.6 million during the quarter ended March 31, 2003, as well as $0.2 million for capitalized software development costs for the quarter ended March 31, 2004 and $0.8 million for the quarter ended March 31, 2003, and the purchase of restricted time deposits of $0.6 million during the quarter ended March 31, 2004. These restricted time deposits were established to secure letters of credit on behalf of landlords for leased office space. Purchases of property and equipment for the quarter ended March 31, 2004 and 2003 included $0.3 million and zero, respectively, of capitalized software development costs. The remaining purchases of property and equipment for each of the quarters ended March 31, 2004 and 2003, primarily consisted of software and computer equipment. For the quarter ended March 31, 2004, OneSource capitalized an aggregate of $0.5 million of

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external and internal software development costs compared to $0.8 million for the quarter ended March 31, 2003. These capitalized software development costs were primarily associated with development of software platforms to be used in OneSource products and programs. For the quarter ended March 31, 2004, software development projects primarily included continued development of the new data repository on a single, unified database structure; development of new platform functionality; and development of additional functionalities for one of the Catalyst^SM modules.

     Net cash used by financing activities was $0.2 million for the quarter ended March 31, 2004, compared to net cash provided by financing activities of $0.7 million for the quarter ended March 31, 2003. Net cash used by financing activities for the quarter ended March 31, 2004 primarily consisted of the repayment of long-term debt of $0.3 million, partially offset by proceeds from the issuance of common stock pursuant to stock options and the employee stock purchase plan of $0.1 million. Net cash provided by financing activities for the quarter ended March 31, 2003 primarily consisted of proceeds from the equipment line of credit of $1.5 million, and proceeds from the issuance of common stock pursuant to stock options and the employee stock purchase plan of $0.4 million. Partially offsetting these proceeds was the repurchase of common stock of $1.3 million.

     In April 2001, OneSource’s board of directors announced a stock buyback program to repurchase up to 1,000,000 shares of OneSource common stock over the following twelve months. In January 2002, OneSource completed the repurchase of its common stock authorized under this stock buyback program at an average price of $8.48 per share.

     In January 2002, OneSource’s board of directors announced a second stock buyback program to repurchase up to an additional $5.0 million of its common stock over the following twelve months. In November 2002, OneSource completed its second stock buyback program, having repurchased 749,931 shares of its common stock at an average price of $6.67 per share.

     In October 2002, OneSource’s board of directors announced a third stock buyback program to repurchase up to an additional $5.0 million of its common stock over the following twelve months. In August 2003, OneSource completed its third stock buyback program, having repurchased 736,837 shares of its common stock at an average price of $6.79 per share.

     In July 2003, OneSource’s board of directors announced a fourth stock buyback program to repurchase up to an additional $7.0 million of its common stock over the following twelve months. As of March 31, 2004, OneSource had repurchased 234,882 shares of its common stock under this fourth stock buyback program at an average price of $7.83 per share, for a total cost of $1.8 million.

     OneSource believes that its current cash and cash equivalents and funds anticipated to be generated from operations will be sufficient to satisfy working capital and capital expenditure requirements for at least the following twelve months.

Contractual Obligations and Commitments

     The following table presents OneSource’s contractual obligations and commercial commitments as of March 31, 2004 over the next five calendar years.

Certain Factors that May Affect Future Results

     This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. OneSource’s actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including without limitation, those set forth in the following risk factors discussed below and elsewhere in this Quarterly Report on Form 10-Q. In addition to the other information included or incorporated by reference in this Quarterly Report on Form 10-Q, the following risk factors should be considered carefully in evaluating OneSource and its business:

     THE TRANSACTIONS WITH INFOUSA INC. MAY NOT BE COMPLETED. On April 29, 2004, we announced that we had entered into a merger agreement with infoUSA Inc. Under the agreement, on May 6, 2004, infoUSA Inc., through a wholly-owned subsidiary, commenced a cash tender offer to acquire each share of our common stock outstanding at a purchase price of $8.85 per

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share in cash. The offer is expected to close in the second quarter of 2004, but infoUSA Inc. may refuse to complete the offer for a variety of reasons, including if there is a material adverse change affecting us or if less than 51% of our common stock outstanding is tendered. The merger agreement provides that, following the closing of the tender offer, a wholly owned subsidiary of infoUSA Inc. will be merged with and into us, and we will continue as a wholly owned subsidiary of infoUSA. However, infoUSA may terminate the merger agreement prior to the merger for several reasons, including if we breach the agreement and such breach, unless cured within a specific time, would result in a material adverse effect on us, or if less than 51% of the outstanding shares of our common stock were tendered in the offer. Completion of the merger is also subject to certain conditions, including the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.

     If either the offer or the subsequent merger is not completed for any reason, we may be subject to a number of consequences that may adversely affect our business, results of operations and stock price, including the following:

•

under certain circumstances, we may be required to pay a termination fee of $3 million plus up to $1 million of expenses of infoUSA Inc.;

•

the price of our common stock may decline to the extent that the relevant current market price reflects a market assumption that the transactions contemplated by the merger agreement with infoUSA will be completed;

•

some costs related to the transactions, such as legal, accounting, financial advisor and financial printing fees, must be paid even if the transactions are not completed;

•

activities relating to the transactions and related uncertainties may divert management’s attention from day-to-day business and cause substantial disruptions among employees and relationships with customers and data providers; and

•

provisions in the merger agreement include certain operating restrictions which may prevent us from being able to take advantage of alternative business opportunities or effectively respond to competitive pressures.

     OUR SALES EFFORTS TO OUR TARGET MARKET MAY BE LENGTHY, INVOLVE DELAYS, OR INVOLVE UNCERTAINTY, ALL OF WHICH MAY ADVERSELY IMPACT OUR BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION. Selling our products and services to Global 5000 companies, our target market, involves sales cycles that we believe are potentially longer and more uncertain than those involving small-size organizations. Our customers generally commit significant time and resources to evaluate our products and services, and they often require us to expend substantial time, effort, and money to educate them about our products and services. In addition, these sales efforts often require final approval from our customers’ senior level management, potentially resulting in delays to the sales cycle. Any of these factors may extend the sales cycle and increase the uncertainty of whether a sale will actually be completed. Further, uncertainty resulting from our announcement of the transaction with infoUSA Inc. and its affiliate may cause current and potential customers to defer orders. The timing and uncertainty of sales and the length of the sales cycle may cause our operating results to vary significantly from quarter to quarter and may adversely impact our business, operating results, and financial condition.

     AS WE COMPLEMENT THE EXISTING ONESOURCE PRODUCT LINE WITH NEW PRODUCTS AND SERVICES, THIS MAY DIVERT MANAGEMENT AND TECHNICAL ATTENTION AND FINANCIAL RESOURCES AND MAY NOT PRODUCE THE DESIRED BUSINESS RESULTS. As we complement the existing OneSource product line with new business information products and services, our management team and technical personnel may spend a significant amount of time and management and financial resources in such development and implementation.

     Despite the investment of management, technical, and financial resources with respect to these efforts, the potential new products and services may not produce the revenues, earnings, or business results that we may anticipate for the following reasons:

•

we may experience difficulty in developing and implementing products and services that integrate and operate effectively with our customers’ existing applications, business processes, and functions;

•

the products and services may not achieve market acceptance;

•

we may contract with certain third parties to provide content and/or supplement the products and services we provide, which may yield lower gross margins than our existing business;

•

we may experience delays in the development and implementation of these products and services; and

•

the introduction of new products and services may require changes to accounting methods, policies, and procedures.

     WE HAVE A CUMULATIVE DEFICIT AND EXPECT TO CONTINUE TO HAVE A CUMULATIVE DEFICIT FOR THE FORESEEABLE FUTURE, AND WE MAY NOT SUSTAIN OR INCREASE NET INCOME UNLESS WE CONTINUE TO OFFSET OUR ROYALTY PAYMENTS AND OPERATING EXPENSES WITH REVENUES FROM OUR WEB-BASED PRODUCTS AND SERVICES. We incurred losses from operations of approximately $1.6 million in 1996, $1.4 million in 1997, $5.0 million in 1998, $6.4 million in 1999, and $2.0 million in 2000, and had income from operations of $5.7 million in 2001, $6.6 million in 2002, and $3.7 million in 2003. As of March 31, 2004, we had an accumulated deficit of $7.0 million. If we are unable to offset our royalty payments and operating expenses with revenues from our Web-based products and services, we may not be able to sustain or increase net income.

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     WE RELY ON GENERATING SUBSCRIPTION REVENUES FROM OUR WEB-BASED PRODUCT LINE, AND WE MAY NOT SUSTAIN OR INCREASE NET INCOME UNLESS DEMAND FOR OUR WEB-BASED PRODUCTS REMAINS THE SAME OR CONTINUES TO GROW. Subscription revenues from Web-based product line accounted for 97% of total revenues for the three months ended March 31, 2004, 97% of total revenues in 2003, 96% of total revenues in 2002, 95% of total revenues in 2001, 91% of total revenues in 2000, 90% of total revenues in 1999, 53% of total revenues in 1998, and 11% of total revenues in 1997. As a result, our future financial condition may depend heavily on the success or failure of our Web-based product line. These products were introduced in December 1996, and it is difficult to predict demand and market acceptance in the rapidly evolving Web-based business information products and services market. If the demand for our Web-based products does not remain the same or continue to grow, whether due to, among other factors, increased competition, lack of market acceptance, insufficient enhancements, failure of Internet or Web use to grow in general, or technological change, we may not be able to sustain or increase net income.

     SOME OF OUR STOCKHOLDERS MAY BE ABLE TO SIGNIFICANTLY INFLUENCE THE OUTCOME OF MATTERS REQUIRING STOCKHOLDER APPROVAL, WHICH MAY ACCELERATE, DELAY, FACILITATE, OR MAKE MORE DIFFICULT A MERGER, TENDER OFFER, OR PROXY CONTEST, AND MAY ADVERSELY AFFECT THE RIGHTS OF OUR STOCKHOLDERS. Our current directors, officers, and greater than 10% stockholders together beneficially own a significant portion of our outstanding shares of common stock. While these stockholders do not hold a majority of our outstanding common stock, they will be able to exercise significant influence over matters requiring shareholder approval, possibly including the proposed transaction with infoUSA Inc., which may accelerate, delay, facilitate, or make more difficult a merger, tender offer, or proxy contest, and may adversely affect the rights of our stockholders. In connection with the transaction with infoUSA Inc., ValueAct Capital Partners, L.P. and certain of its affiliates and Martin Kahn, executive chairman and interim chief executive officer of OneSource, have entered into agreements with infoUSA Inc., under which they have agreed to tender their OneSource common stock pursuant to the offer and vote in favor of the offer. These stockholders held approximately 34.1% of the outstanding common stock of OneSource as of April 29, 2004.

     OUR RESTATED CERTIFICATE OF INCORPORATION AND AMENDED AND RESTATED BY-LAWS CONTAIN PROVISIONS THAT MAY HAVE THE EFFECT OF DELAYING OR PREVENTING CERTAIN CORPORATE ACTIONS, WHICH MAY ADVERSELY AFFECT THE RIGHTS OF OUR STOCKHOLDERS. Our board of directors is authorized to issue up to 1,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges, and restrictions, including voting rights, of those shares without further approval by stockholders. Preferred stock may be issued with voting, liquidation, dividend, and other rights superior to those of common stock, without stockholder approval. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock may make it more difficult for a third party to acquire, or may discourage a third party from acquiring, a majority of our outstanding common stock.

     In October 2003, our board of directors adopted the Rights Plan under which all holders of record of our common stock as of October 6, 2003 were issued a right to purchase a fraction of a share of a new series of preferred stock. The Rights Plan is designed to enhance the ability of our board of directors to provide for fair and equal treatment for all shareholders and may deter some potential acquirers. In connection with the proposed transaction with infoUSA Inc., the Rights Plan was amended to exempt the transaction.

     In addition, certain provisions of the Delaware General Corporation Law may have the effect of delaying or preventing a change in control or management of OneSource. The issuance of preferred stock, implementation of the Rights Plan, and relevant provisions of Delaware General Corporation Law may delay or make more difficult a merger, tender offer, or proxy contest, and may adversely affect the rights of our stockholders that may otherwise receive a premium over the fair market value of our common stock.

     IF WE LOSE KEY PERSONNEL AND ARE UNABLE TO ATTRACT ADDITIONAL AND RETAIN EXISTING KEY PERSONNEL, IT MAY CAUSE AN ADVERSE EFFECT ON OUR BUSINESS. We expect that our future success will depend, in substantial part, on the continued services of our senior management. None of our senior management has entered into employment agreements with us, and we do not maintain key-person life insurance on any of our employees. The loss of the services of one or a group of our key personnel may have a material, adverse effect on development of new products and services, our ability to manage the business, and our financial condition. On February 5, 2004, we announced that Dan Schimmel, our president and chief executive officer, resigned, and Martin Kahn, our current chairman, was appointed executive chairman and chief executive officer on an interim basis. In addition, we expect that our future success will depend on our continuing ability to attract, retain, and motivate highly qualified technical, customer support, sales, finance, accounting, and managerial personnel. Competition for such key personnel is intense, and we cannot assure that we will be able to retain such personnel or that we will be able to attract, assimilate, or retain other highly qualified personnel in the future. Further, competition for highly qualified key personnel may lead to increased recruitment and retention costs, thus potentially hindering our financial condition. Moreover, uncertainty resulting from our announcement of the proposed transaction with infoUSA Inc. may cause our key personnel to seek other employment opportunities, and our ability to attract and retain key personnel may be harmed, which may adversely affect our business.

     IF OUR INFORMATION PROVIDERS PROVIDE US WITH INACCURATE OR UNRELIABLE DATA, FAIL TO TRANSMIT THEIR DATA FEEDS IN A TIMELY MANNER, CEASE DOING BUSINESS WITH US, OR REQUIRE US TO

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SIGNIFICANTLY INCREASE OUR ROYALTY OBLIGATIONS, FUTURE SALES OF OUR WEB-BASED PRODUCTS AND SERVICES MAY BE JEOPARDIZED, AND THIS MAY ADVERSELY AFFECT OUR BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION. We depend significantly on information providers to supply accurate and reliable information and data feeds to us on a timely basis. Our Web-based products and services may experience interruptions (and potentially may be compromised) due to any failure, delay, or cut-off in the transmission or receipt of this information, or a requirement by our information providers that royalty payments be significantly increased. In addition, our products and services may be negatively affected if our information providers provide us with faulty or erroneous data that becomes integrated with our products and services. Further, as a result of our announcement of the proposed transaction with infoUSA Inc., some of our information providers may seek to change or terminate their relationships with us. We may then have to seek alternative sources, and, in some cases, it is possible that reasonable alternatives may not exist without resorting to multiple sources, or may not be provided in a timely manner. This may result in increased costs or reduced functionality of our products and services and may adversely affect our business, operating results, and financial condition.

     IF OUR THIRD PARTY HOSTING FACILITY SUFFERS A DISASTER, IT MAY BE COSTLY TO CORRECT, AND OUR BUSINESS MAY SUFFER SIGNIFICANT LOSSES. OneSource makes its on-line products available through one hosting facility, which is managed by SAVVIS Communications Corporation (formerly Cable & Wireless U.S.A., Inc.). This hosting facility was moved in fiscal year 2003 from Medford, Massachusetts to Waltham, Massachusetts. Our third party hosting facility may suffer a disaster relating to the facility, its power supplies, or telecommunications transports. Defects, errors, or a disaster at our third party hosting facility also may result in significant downtime, and our business may as a consequence suffer significantly from potential adverse customer reaction, litigation, negative publicity, loss of revenues, or harm to our reputation.

     ANNUALIZED CONTRACT VALUE MAY NOT BE AN ACCURATE INDICATOR OF OUR PERFORMANCE. We use “annualized contract value” as a measurement for normalized period-to-period comparisons to indicate business volume and growth. Our presentation and calculation of annualized contract value may not be comparable to similarly titled measures used by other companies. It is not an absolute indicator, and we cannot guarantee that any annualized contract value will be ultimately realized as revenues.

     COMPETITION IN OUR INDUSTRY IS INTENSE, AND MANY OF OUR COMPETITORS HAVE GREATER RESOURCES THAN WE DO; THIS COMPETITION MAY ADVERSELY AFFECT OUR FINANCIAL RESULTS. The business information products and services industry is intensely competitive and rapidly evolving. Several of our information providers compete against each other and in some cases with us. We face direct or indirect competition from numerous companies, including the following:

•

large, well-established business and financial information providers, such as Dow Jones & Co., Pearson PLC, Reuters Group PLC, and McGraw-Hill Companies Inc.;

•

aggregators of business and financial information, such as LexisNexis Group (a Reed Elsevier Plc subsidiary), The Dialog Corporation (a Thomson Corporation subsidiary), Factiva (a Dow Jones & Co. subsidiary), Alacra, Inc., Capital IQ, Inc., and Bureau Van Dijk Computer Services SA;

•

providers of company information, such as Thomson Financial, Inc. (a Thomson Corporation subsidiary), Hemscott Group Ltd. (a Finmedia Ltd. subsidiary), and Hoovers, Inc. (a subsidiary of The Dun & Bradstreet Corporation);

•

providers of sales, marketing, and credit information, such as Dun & Bradstreet, Inc. (a subsidiary of The Dun & Bradstreet Corporation) and infoUSA Inc.; and

•

Web retrieval and Web “portal” companies and other free or low-cost mass market on-line services, such as Yahoo! Inc., AOL-Time Warner, Inc., MarketWatch.com, Inc., Google, Inc., and TheStreet.com, Inc.

     Based on reported operating results, industry reports and other publicly available information, many of our competitors have longer operating histories, greater name recognition, larger customer bases, and greater financial, technical, and marketing resources. As a result, they may be able to respond more quickly to new or emerging technologies and changes in user requirements, or to devote greater resources to the research, development, promotion, and sale of their products and services than we can. These competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies, and make more attractive offers to potential employees, customers, and information providers. Our competitors also may develop products and services that are equal or superior to our products and services or that achieve greater market acceptance than our products and services. Ultimately, we may lose customers to competitors if we are not able to satisfy increasingly sophisticated customer requirements, enhance existing OneSource products and services, and develop new products and services in a timely, economical fashion. In addition, increased competition may result in price reductions, reduced margins, or loss of market share, any of which may adversely affect our business, operating results, and financial condition.

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     OUR FAILURE TO INCREASE THE NUMBER OF OUR SUBSCRIBERS OR RETAIN OUR CURRENT SUBSCRIBER BASE MAY ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION. Our future success remains highly dependent on attracting organizations that are financially able to and willing to allocate funds to subscribe to on-line business information products and services. If the market for subscription-based on-line business information products and services develops more slowly than we may anticipate, or if our efforts to retain existing subscribers or attract new subscribers are not successful or cost-effective, our operating results and financial condition may be adversely impacted.

     IF A SIGNIFICANT NUMBER OF OUR CUSTOMERS EXPERIENCE A DECLINE IN THEIR FINANCIAL CONDITION, THE COLLECTABILITY OF OUR ACCOUNTS RECEIVABLE MAY SUFFER, AND MAY ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION. If a significant number of our customers experience a decline in their financial condition, it may cause us to write-off the amounts owed by these customers as bad debt expense, a reduction of deferred revenues, and/or realize a revenue reduction, either of which may adversely affect our operating results and financial condition.

     EXPANDING INTO INTERNATIONAL MARKETS WHERE WE HAVE LIMITED PRIOR EXPERIENCE MAY ADVERSELY AFFECT OUR BUSINESS. Our principal offices are located in the United States and in the United Kingdom, but we look to expand our business opportunities into new markets. Expanding into diverse international markets exposes us to certain risks of conducting business that include, but are not limited to, the following: potential higher costs, unanticipated regulatory changes, political instability, terrorism, difficulties in staffing and managing operations, adverse tax consequences, currency and exchange rate fluctuations, and seasonal reductions in business activity. In addition, the impact of language and other cultural differences may result in product and service offerings that may not satisfy the needs of our customers and may not be profitable. Further, strategic relationships may be necessary to facilitate expansion into certain markets, and our business may be adversely affected if we misallocate our resources and ultimately fail to gain new or effective alliances in these areas. Moreover, possible nationalization, expropriation, and limits and unique laws pertaining to the collection and provision of certain types of information on individuals (e.g., the Data Protection Act, the European Commission’s Directive on Data Protection, etc.) may hinder operations in international markets, and may adversely affect our business.

     GENERAL ECONOMIC AND GEOPOLITICAL CONDITIONS MAY NEGATIVELY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION. An economic downturn and uncertain geopolitical environment may cause organizations to delay or forego entirely investments in value-added business information products and services such as our Web-based products and services. We have experienced these effects in the last quarter as a result of the recent economic slowdown and geopolitical conditions. A prolonged recession and difficult geopolitical situation may cause organizations that comprise our target market to significantly reduce discretionary spending with business information providers and create a greater risk of business failure among existing subscribers. These effects may adversely affect our operating results and financial condition.

     IF OUR SOFTWARE OR HARDWARE BECOMES DEFECTIVE, OR IF OUR SOFTWARE, HARDWARE, OR WEB SITE BECOMES THE TARGET OF INTENTIONAL DISRUPTIONS, DIRECTLY OR INDIRECTLY, OUR PRODUCTS AND SERVICES MAY BE NEGATIVELY IMPACTED, AND OUR REPUTATION, FUTURE SALES, OPERATING RESULTS, AND FINANCIAL CONDITION MAY BE HARMED IF THESE EFFORTS ARE SUCCESSFUL. Complex software like the software we develop and use and the hardware we use for our products and services may contain or develop errors or defects, especially when first implemented and as our product and service offerings increase in scope and complexity, that may be difficult and costly to correct. In addition, our software, hardware, or Web site may become the target of intentional disruptions, directly or indirectly, including software viruses and malicious code specifically designed to impede the performance of our products and services; such software viruses and malicious code may avoid detection by our anti-virus software in place. Similarly, experienced computer programmers or hackers may attempt to penetrate our network security or the security of our Web site and misappropriate proprietary information or cause interruptions to the delivery of our products and services. As a result, our activities may be substantially disrupted; the introduction of new products, services, and enhancements may be delayed; and our reputation, future sales, operating results, and financial condition may be adversely impacted if these efforts are successful.

     POTENTIAL GROWTH IN OUR FUTURE OPERATIONS MAY STRAIN OUR MANAGERIAL AND FINANCIAL RESOURCES AND OPERATING SYSTEMS. FAILURE TO SUCCESSFULLY MANAGE GROWTH, OR UNEXPECTED DIFFICULTIES DURING EXPANSION, MAY ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION. We have experienced growth in our operations and plan to pursue growth opportunities related to the OneSource product line, related software applications, and fee-based services, particularly in our target market accounts. In order to support such potential growth, we may need to: (i) implement and modify relevant financial, operational, and management controls; reporting systems; and procedures on a timely basis; (ii) expand, train, and manage our employee base; and (iii) alter the coordination among our staff responsible for product and platform development, sales and marketing, and finance and administration. If we are unable to accomplish any of these objectives during a period of growth, our operating results and financial condition may be adversely impacted.

     WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS, WHICH MAY MAKE IT DIFFICULT FOR INVESTORS TO PERFORM RELIABLE PERIOD-TO-PERIOD COMPARISONS, AND CONTRIBUTE TO

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VOLATILITY IN THE MARKET PRICE FOR OUR COMMON STOCK, THUS POTENTIALLY REDUCING INVESTMENT IN OUR STOCK. Our quarterly revenues, gross profits, and operating results may fluctuate in the future. In addition, we believe that an important measure of our business is the annualized contract value at the end of each period, which also may fluctuate. Causes of such fluctuations have included and may include, among other factors, as follows:

•

changes in demand for our products and services;

•

the size, value and timing of both new and renewal subscriptions with our corporate customers;

•

any delays or deferrals in recognizing revenue in any transaction;

•

the cost and renewal status of contracts with our content providers;

•

competition (particularly price, product, and service competition);

•

increases in selling and marketing expense, as well as other operating expenses;

•

technical difficulties or system downtime affecting our products or the Web generally;

•

overall performance of our products, services, and technology;

•

our ability to develop, market, and introduce new and enhanced versions of our products on a timely basis;

•

economic conditions specific to the Web, as well as general economic and political conditions; and

•

consolidation of our customers.

     Further, a substantial portion of our expenses, including most product and platform development and selling and marketing expenses, must be incurred in advance of revenue generation. If we are unable to sustain or expand our sales and marketing efforts and our projected revenues do not meet our expectations, then we are likely to experience a shortfall in our income from operations relative to our expectations. Moreover, any potential claims, even if not meritorious, in a lawsuit against us may result in the expenditure of significant financial and managerial resources on our part, which may contribute to a decrease in investment of our stock and may adversely impact our operating results and financial condition by potentially subjecting us to significant liabilities and negative publicity and by diverting management’s attention and resources.

     WE MAY BE SUBJECT TO POTENTIAL LITIGATION BY ANY THIRD PARTY CONCERNING THE INFRINGEMENT OF ANY PROPRIETARY RIGHT, AND SUCH LITIGATION MAY BE COSTLY AND TIME CONSUMING. IN ADDITION, WE MAY HAVE TO INCUR LEGAL EXPENSES TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS. There has been substantial litigation in the information services industry involving intellectual property rights. Although we believe that we have not infringed, and are not infringing, the intellectual property of others through our products and services, if such claims were to be asserted, with or without merit, they may adversely affect our business, operating results, and financial condition. In addition, to the extent that we license from third parties information that is included in our Web-based product line, our potential exposure to copyright infringement actions may increase because we must rely upon warranties and representations by such information providers as to the origin and ownership of content that we are subsequently licensing to users of our Web-based products; such warranties and representations may be inaccurate or inadequate. In addition, although we generally include indemnification provisions in our agreements with information providers, indemnification may not be adequate compensation for breach of such warranties and representations. In the event of a successful claim against us, we may be required to pay significant monetary damages if we are held to have willfully infringed a patent, copyright, trade secret, or other proprietary right; discontinue use or sale of the infringing products or information; expend significant resources to develop non-infringing technology; and/or enter into royalty and licensing agreements that may not be offered on acceptable terms. If a successful claim is filed against us and we fail to commercially develop or license a substitute technology, our business may be adversely harmed.

     In the future, litigation may be necessary to defend, enforce, and/or protect our own intellectual property, including our copyrights, patents, trademarks, and other proprietary information. The protective steps we have taken and continue to take may be inadequate to deter misappropriations of our intellectual property rights, and we may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights.

     Any litigation involving intellectual property rights may be costly and time consuming, and divert management’s attention, either of which may adversely affect our business, operating results, and financial condition. Adverse determinations in this litigation may result in the loss of our proprietary rights, subject us to significant liabilities, require us to seek licenses from additional third parties, cause our customers to prematurely cancel their subscriptions to our products, and prevent us from selling our products and services;

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any one of these results may materially and adversely affect our business, operating results, and financial condition. Additionally, our general liability insurance may not cover any of these claims or may not be adequate to protect us against all liability that may be imposed. Further, effective protection of intellectual property rights is limited or unavailable in certain foreign countries, thus making the possibility of misappropriation of our intellectual property more likely. Policing unauthorized use of our products is difficult, expensive, and time consuming, and the unique technology of the Internet may provide new methods for illegal copying and distribution. Accordingly, we cannot be certain that we may be able to protect our intellectual property rights against unauthorized third party copying, distribution, or use. This may subject us to litigation and adversely affect our competitive position.

     THE FUTURE SALES OF OUR COMMON STOCK MAY NEGATIVELY AFFECT OUR COMMON STOCK PRICE, WHICH MAY CAUSE DIFFICULTIES IN THE FUTURE TO SELL EQUITY IN THE FUTURE. If our stockholders decide to sell substantial amounts of our common stock, including shares that may be issued upon the exercise of outstanding options in the public market, the market price of our common stock may decrease. Such potential sales may make it increasingly difficult for us to sell equity securities in the future at a time and price that we deem reasonable and appropriate.

     IF WE ARE UNABLE TO MAINTAIN OUR REPUTATION AND EXPAND OUR NAME RECOGNITION, WE MAY HAVE DIFFICULTY ATTRACTING NEW BUSINESS AND RETAINING OUR CURRENT CUSTOMER BASE AND EMPLOYEES, AND OUR BRAND NAME, REPUTATION, AND BUSINESS MAY SUFFER. Establishing and maintaining a solid reputation and name recognition are critical for attracting and retaining customers as well as employees. The importance of reputation and name recognition is increasing and will continue to increase due to the growing number and quality of providers of Web-based business and financial information products and services. If our reputation is damaged or if potential customers and employees are not familiar with our products and services, we may not be able to attract new, or retain existing, customers and employees. The promotion and enhancement of our name will depend largely on our success in continuing to provide valuable products and services and to successfully market our products and services. If customers do not perceive our products and services to be effective or high quality, our brand name, reputation, and business may suffer.

     IF WE ARE REQUIRED TO RECORD A SIGNIFICANT CHARGE TO OPERATING EXPENSES DUE TO A REASSESSMENT OF OUR ACQUIRED INTANGIBLE ASSETS OR CAPITALIZED SOFTWARE DEVELOPMENT COSTS, THIS MAY ADVERSELY AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION. We are required under generally accepted accounting principles to periodically review our acquired intangible assets, which consist of goodwill, trademarks, a subscriber list, and a database, and our capitalized software development costs, which consist of software programs and platforms used in our products and programs used for our proprietary classification system. Goodwill is required to be tested for impairment at least annually. Factors that may be considered a change in circumstances indicating that the carrying value of our acquired intangible assets or capitalized software development costs may not be recoverable include significant underperformance relative to expected historical or projected operating results and significant negative industry or economic trends. We assess the recoverability of our acquired intangible assets and capitalized software development costs by determining whether the amortization of the remaining balance over its estimated remaining life can be recovered through projected undiscounted future cash flows and measure the impairment loss, if any, based on the related future estimated discounted cash flows. If we determine that our acquired intangible assets or our capitalized software development costs may not be recoverable, we may be required to record a significant charge to operating expenses in our consolidated statement of income during the period in which any impairment is determined. This may adversely affect our operating results and financial condition.

     LAWS, RULES, AND REGULATIONS WITH RESPECT TO CORPORATE GOVERNANCE, REPORTING, AND DISCLOSURE MAY HINDER OUR ABILITY TO ATTRACT AND/OR RETAIN CAPABLE BOARD MEMBERS, A CHIEF EXECUTIVE OFFICER, AND A CHIEF FINANCIAL OFFICER, AND MAY RESULT IN A REDUCTION IN THE NUMBER OF BOARD MEMBERS, WHICH MAY ADVERSELY AFFECT OUR BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION AND OUR ABILITY TO MEET LISTING CRITERIA. In July 2002, President George W. Bush signed the Sarbanes-Oxley Act of 2002 into law, and several rules and regulations were announced thereafter. Among other things, the Sarbanes-Oxley Act of 2002 imposes corporate governance, reporting, and disclosure requirements; introduces stricter independence and financial expertise standards for audit committees; and sets stiff penalties for securities fraud. In addition, the United States Securities and Exchange Commission and the Nasdaq National Market are considering proposals on related corporate governance topics. The Sarbanes-Oxley Act of 2002 and the related rules and regulations will likely increase the scope, complexity and costs of our corporate governance, reporting, and disclosure practices, and may increase the risk of personal liability for our board members, chief executive officer, and chief financial officer. Consequently, it may become more difficult to attract and/or retain such individuals, and may result in a decrease in the number of board members, which may adversely affect our business, operating results, and financial condition and our ability to meet listing criteria.

     IF THE INTERNET BECOMES SUBJECT TO INCREASED LEGISLATION AND GOVERNMENT REGULATION, USE OF THE INTERNET AS A MEDIUM TO RECEIVE SUBSCRIPTION-BASED INFORMATION PRODUCTS AND SERVICES MAY DECLINE, AND WE MAY BE SUBJECT TO LITIGATION, EITHER OF WHICH MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION. The laws governing the Internet continue to be unsettled, even in areas where there has been legislative action. Legislation may dampen the growth in the use of the Internet generally

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and decrease the acceptance of the Internet as a medium to receive subscription-based information products and services. In addition, due to the global nature of the Internet, it is possible that, although our corporate headquarters are located in the Commonwealth of Massachusetts and pre-production and development relating to our products and services occurs primarily in the Commonwealth of Massachusetts, other states, the United States, or foreign countries may attempt to regulate our products and services or levy sales or other applicable taxes on our Web-based products and services. We cannot guarantee that any violations of federal, state, local, or other laws will not be alleged by governmental entities; that we may not unintentionally violate these laws; or that these laws will not be modified, or new laws enacted, in the future. Any of these developments may have an adverse effect on our business, operating results, and financial condition.

     IF REQUIREMENTS RELATED TO ACCOUNTING TREATMENT FOR EMPLOYEE STOCK OPTIONS ARE MODIFIED, WE MAY BE FORCED TO CHANGE OUR BUSINESS PRACTICES, WHICH MAY HINDER OUR ABILITY TO RETAIN EXISTING EMPLOYEES AND ATTRACT HIGHLY QUALIFIED CANDIDATES, WHICH MAY HAVE A NEGATIVE EFFECT ON OUR NET INCOME. We currently account for the issuance of stock options under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” If proposals currently under consideration by accounting standards organizations and governmental authorities are adopted, we may be required to treat the value of stock options granted to employees as a compensation expense. As a result, we may decide to reduce the number of stock options granted to employees or to grant options to fewer employees. This may affect our ability to retain existing employees and attract highly qualified candidates, and increase the cash compensation we may be required to pay these individuals. Such a change may have a negative effect on our net income.

     IT MAY BECOME INCREASINGLY EXPENSIVE TO OBTAIN AND MAINTAIN LIABILITY INSURANCE AT CURRENT LEVELS. We contract for insurance to cover a variety of potential risks and liabilities. In the current market, insurance coverage is becoming more limited, with larger deductibles, higher costs, more exclusions, and fewer carriers. In light of these circumstances, it may become more difficult to maintain insurance coverage at historical levels or, if such coverage is available, the cost to obtain or maintain it may increase substantially. This may result in our being forced to bear an increased portion of risks for which we have traditionally been covered by insurance, which may negatively affect our results of operations.

     IF FUTURE OR EXISTING PLATFORMS EMERGE IN THE MARKETPLACE, THEY MAY REQUIRE US TO UNDERGO THE EXPENSE OF DEVELOPING AND MAINTAINING COMPATIBLE PRODUCT LINES, AND SUCH DEVELOPMENT AND MAINTENANCE MAY PLACE A SIGNIFICANT STRAIN ON OUR RESOURCES AND PRODUCT RELEASE SCHEDULES, WHICH MAY HAVE AN ADVERSE EFFECT ON OUR BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION. Although our Web-based products can be licensed for use with a variety of customer relationship management platforms, there may be future or existing platforms that emerge in the marketplace that may not be architecturally compatible with our Web-based product design. Moreover, future or existing user interfaces that emerge in the business application marketplace may or may not be architecturally compatible with our Web-based product design. Developing and maintaining consistent performance across all of these combinations may place a significant strain on our resources and product release schedules, which may adversely affect our business, operating results, and financial condition. To maintain performance across accepted platforms and operating environments, or to achieve market acceptance of those that we support, or to adapt to emerging new ones, our expenses may increase, and our sales and revenues may be adversely impacted.

     Any one or more of these factors may affect our business, operating results, and financial condition, and this makes the prediction of operating results on a quarterly basis unreliable. As a result, we believe that period-to-period comparisons of our historical operating results and annualized contract values are not necessarily meaningful and should not be relied upon as an indication for future performance. Also, due to these and other factors, it is possible that our quarterly operating results (including the annualized contract value) may be below expectations. If this happens, the price of our common stock would likely decrease.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     OneSource is exposed to various market risks, including changes in foreign currency exchange rates and interest rates. OneSource’s exposure to currency exchange rate fluctuations has been and is expected to continue to be modest due to the fact that the operations of its United Kingdom subsidiary are almost exclusively conducted in local currency, rather than multiple foreign currencies. Operating results are translated into United States dollars and consolidated for reporting purposes. The impact of currency exchange rate movements on inter-company transactions was immaterial for the quarters ended March 31, 2004 and 2003. OneSource does not engage in hedging activities.

     As part of its investment portfolio, OneSource also owns money market funds that are sensitive to market risks. The investment portfolio is used to preserve OneSource’s capital until it is required to fund operations, including OneSource’s sales and marketing and product development activities. None of these market-risk sensitive instruments are held for trading purposes. The investment portfolio contains instruments that are subject to the risk of a decline in interest rates. OneSource does not enter into derivatives or any other financial instruments for trading or speculative purposes. As of March 31, 2004, OneSource had $25.3 million in cash and cash equivalents.

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     At March 31, 2004, borrowings of $2.1 million were outstanding under an equipment line of credit which incur interest at the prime interest rate (4.00% as of March 31, 2004) plus 0.50%. Because of its variable interest rate, the carrying value of this debt approximates its fair value

Item 4. Controls and Procedures

     Evaluation of disclosure controls and procedures. Based on their evaluation of OneSource’s disclosure controls and procedures (as defined in Rules 13a-14(c) and 15(d)-1 4(c) under the Securities Exchange Act of 1934) as of March 31, 2004, OneSource’s principal executive officer and principal financial officer have concluded the following: (i) OneSource’s disclosure controls and procedures are effective to ensure that information required to be disclosed by OneSource in reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within time periods specified in Securities and Exchange Commission rules and forms; and (ii) OneSource’s disclosure controls and procedures are effective to ensure that information required to be disclosed by OneSource in reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to OneSource’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

     Changes in control over financial reporting. There were no significant changes in OneSource’s internal control over financial reporting or in other factors that have materially affected, or are reasonably likely to materially affect, OneSource’s internal control over financial reporting. There were no significant deficiencies or material weaknesses, and therefore there were no corrective actions taken.

PART II            OTHER INFORMATION

Item 1. Legal Proceedings

     OneSource and its directors were named as defendants in two purported class action lawsuits filed in the Delaware Court of Chancery in February 2004, entitled Hoffacker v. OneSource Information Services, Inc., et al., Filing ID No. 3140593, and Pennsylvania Avenue Funds v. Kamin, et al., Filing ID No. 3141683, respectively. The complaints allege, among other things, that the defendants breached their fiduciary duties in entering into the proposed transaction with affiliates of ValueAct Capital. The complaints seek unspecified damages and injunctive relief. OneSource and its directors believe the claims to be without merit and intend to defend against them vigorously.

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

     On May 19, 1999, OneSource commenced an initial public offering of 3,636,000 shares of common stock, $0.01 par value per share, pursuant to a final prospectus dated May 19, 1999. The prospectus was contained in OneSource’s registration statement on Form S-1, which was declared effective by the United States Securities and Exchange Commission (SEC File No. 333-73263) on May 18, 1999. Of the 3,636,000 shares of common stock offered, 2,500,000 shares were offered and sold by OneSource and 1,136,000 shares were offered and sold by certain stockholders of OneSource. The offering closed on May 24, 1999 upon the sale of all 3,636,000 shares. The aggregate offering price of the offering to the public was $43,632,000, with proceeds to OneSource and the selling stockholders, after deduction of the underwriting discount, of $27,900,000 and $12,677,760, respectively. The aggregate amount of expenses incurred by OneSource in connection with the issuance and distribution of the shares of common stock sold in the offering were approximately $3.9 million, including approximately $3.0 million in underwriting discounts and commissions and $0.9 million in other offering expenses.

     The net proceeds to OneSource from the offering, after deducting underwriting discounts and commissions and other offering expenses, were approximately $27.0 million.

     The net proceeds from the offering, less $6.8 million used to pay off long-term debt and $7.6 million used to acquire Corporate Technology Information Services, Inc., have been invested in interest bearing, investment grade securities.

     Since the initial public offering, OneSource has produced positive cash flow, and has not needed to further draw from these funds for day-to-day operations.

     OneSource has not sold any securities during the quarter ended March 31, 2004 and for the years ended December 31, 2003, 2002, and 2001 that were not registered under the Securities Act of 1933.

     In October 2003, the board of directors of OneSource adopted the Rights Plan under which all holders of record of OneSource common stock as of October 6, 2003 were issued a right to purchase a fraction of a share of a new series of preferred stock. The Rights Plan is designed to enhance the ability of OneSource’s board of directors to provide for fair and equal treatment for all shareholders.

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     Each right entitles the holder to purchase from OneSource one-thousandth of a share of a new series of participating preferred stock at an initial purchase price of $32.50. The rights will become exercisable and will detach from the common stock a specified period of time after any person has become the beneficial owner of 15% or more of OneSource common stock or commenced a tender or exchange offer which, if consummated, would result in any person becoming the beneficial owner of 15% or more of the common stock.

     If any person becomes the beneficial owner of 15% or more of OneSource common stock, each right will entitle the holder, other than the acquiring person, to purchase for a number of shares of capital stock of OneSource having a value of twice the purchase price.

     If, following an acquisition of 15% or more of OneSource common stock, OneSource is involved in certain mergers or other business combinations or sells or transfers more than 50% of its assets or earning power, each right will entitle the holder to purchase for the purchase price common stock of the other party to such transaction having a value of twice the purchase price.

     At any time after a person has acquired 15% or more (but before any person has acquired more than 50%) of OneSource common stock, OneSource may exchange all or part of the rights for shares of common stock at an exchange ratio of one share of common stock per right.

     The Rights Plan “grandfathers” ValueAct Capital, L.P. and its affiliates as long as they do not acquire beneficial ownership of more than 35% of OneSource common stock. On February 17, 2004, the Rights Plan was amended to exempt the proposed transaction with ValueAct Capital.

     On April 29, 2004, the Rights Plan was further amended to exempt the proposed transaction with infoUSA Inc. and to remove the exemption for the proposed transaction with ValueAct Capital and its affiliates.

     OneSource may redeem the rights at a price of $0.001 per right at any time prior to the time that any person becomes the beneficial owner of 15% or more of its common stock. The rights will expire on October 6, 2013, unless earlier exchanged.

     During the three months ended March 31, 2004, OneSource did not repurchase any of its common stock.

Item 3. Defaults upon Senior Securities

     None.

Item 4. Submission of Matters to a Vote of Security Holders

     None.

Item 5. Other Information

     None.

Item 6. Exhibits and Reports on Form 8-K

     (a) Exhibits

     OneSource hereby files as part of this Quarterly Report on Form 10-Q the exhibits listed below. Exhibits that are incorporated herein by reference can be inspected and copied at the public reference rooms maintained by the United States Securities and Exchange Commission in Washington, D.C.; New York, New York; and Chicago, Illinois. Please call the United States Securities and Exchange Commission at 1-800-SEC-0330 for further information on the public reference rooms. United States Securities and Exchange Commission filings are also available to the public from commercial document retrieval services and at the web site maintained by the SEC at HTTP://WWW.SEC.GOV.

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     (b) Reports on Form 8-K

     A current report on Form 8-K dated February 5, 2004 was filed by OneSource on February 5, 2004 with the United States Securities and Exchange Commission that reported that (i) OneSource accepted the resignation of Dan Schimmel as President and Chief Executive Officer and as a Director; (ii) current Chairman of the Board of Directors Martin Kahn has been named executive chairman and appointed CEO on an interim basis; (iii) the special committee announced that it has completed its review of strategic options; and (iv) OneSource announced financial results for the fourth quarter ended December 31, 2003.

     A current report on Form 8-K dated February 9, 2004 was filed by OneSource on February 9, 2004 with the United States Securities and Exchange Commission that reported that OneSource received a letter from ValueAct Capital indicating ValueAct was prepared to offer to acquire all of the outstanding shares of OneSource at a cash price of $8.10 per share on the terms and conditions contained in a merger agreement enclosed with the letter. OneSource also announced that the special committee of the board of directors of OneSource is reviewing the proposal in order to determine the course of action which will serve the best interests of all shareholders.

     A current report on Form 8-K dated February 18, 2004 was filed by OneSource on February 18, 2004 with the United States Securities and Exchange Commission that reported that OneSource announced that it had entered into a merger agreement with affiliates of ValueAct Capital.

     A current report on Form 8-K dated February 18, 2004 was filed by OneSource on February 18, 2004 with the United States Securities and Exchange Commission that reported that OneSource announced that it had entered into an Agreement and Plan of Merger, dated as of February 18, 2004, by and among OneSource, VAC-OS Holdings LLC and OS Merger Sub, Inc. VAC-OS Holdings LLC and OS Merger Sub, Inc. are affiliates of ValueAct Capital and its affiliates.

     A current report on Form 8-K dated April 22, 2004 was filed by OneSource on April 22, 2004 with the United States Securities and Exchange Commission that reported that OneSource announced financial results for the first quarter ended March 31, 2004.

     A current report on Form 8-K dated April 29, 2004 was filed by OneSource on April 29, 2004 with the United States Securities and Exchange Commission that reported that OneSource announced that it had terminated the merger agreement with affiliates of ValueAct Capital Partners, L.P. and that it had entered into an Agreement and Plan of Merger, dated April 29, 2004, by and among OneSource, infoUSA Inc. and OSIS Acquisition Corp. OSIS Acquisition Corp. is an affiliate of infoUSA Inc.

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SIGNATURE

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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